The Zacks Transportation - Rail industry’s participants are being weighed down by challenges like inflation-induced elevated interest rates, concerns pertaining to supply-chain disruptions and the slowdown of economic growth. Most industry players are looking to drive their bottom line through cost reduction.

Partly due to these headwinds, theindustry has declined 9.5% over the past year compared to the S&P 500 Index’s 19.7% appreciation. The broader Zacks Transportation sector has plunged 5.8% in the said time frame.

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Despite the challenges surrounding the industry, some railroad companies like Union Pacific Corporation UNP and Norfolk Southern Corporation NSC have consistently paid dividends to their shareholders, thus highlighting their pro-shareholder stance.

Dividend growth stocks generally belong to mature companies, which are less susceptible to significant market swings. They act as a hedge against uncertainty-induced stock market volatility and offer downside protection with their consistent increase in payouts.

Additionally, these companies generally have strong fundamentals, such as a sustainable business model, a long track record of profitability, rising cash flows, good liquidity and a strong balance sheet.

How to Pick Stocks With Solid Dividend Payouts?

In order to choose some of the best dividend stocks from the aforementioned industry, we have run the Zacks Stock Screener to identify stocks with a dividend yield in excess of 2% and a sustainable dividend payout ratio of less than 60%. Each stock mentioned below presently carries a Zacks Rank #3 (Hold).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Union Pacific: Headquartered in Omaha, NE, Union Pacific, through its subsidiary, Union Pacific Railroad Company, operates in the railroad business in the United States. Currently, UNP has a market capitalization of $148.38 billion.

UNP pays out a quarterly dividend of $1.34 ($5.36 annualized) per share, which gives it a 2.18% yield at the current stock price. The company’s payout ratio is 48% of its earnings at present. The five-year dividend growth rate is 8.44%. (Check Union Pacific’s dividend history here).

Union Pacific Corporation Dividend Yield (TTM)

Union Pacific Corporation dividend-yield-ttm | Union Pacific Corporation Quote

Union Pacific has paid dividends on its common stock for 125 consecutive years, reflecting its pro-shareholder approach. The company’s consistent initiatives to reward its shareholders through dividends and share repurchases look encouraging. In 2022, UNP paid dividends worth $3.16 billion and repurchased shares worth $6.28 billion. In 2023, the company returned $3.9 billion to its shareholders through dividends ($3.2 billion) and buybacks ($0.7 billion). During 2024, UNP paid $3.21 billion in dividends and repurchased shares worth $1.50 billion. Notably, management expects to buyback shares worth $4.0-$4.5 billion in 2025.

Norfolk Southern: Headquartered in Atlanta, GA, Norfolk Southern transports raw materials, intermediate products and finished goods by rail in the United States. Currently, NSC has a market capitalization of $56.10 billion.

The company pays out a quarterly dividend of $1.35 ($5.40 annualized) per share, which gives it a 2.18% yield at the current stock price. NSC’s payout ratio is 46% of its earnings at present. The five-year dividend growth rate is 10.08%. (Check Norfolk Southern’s dividend history here).

Norfolk Southern Corporation Dividend Yield (TTM)

Norfolk Southern Corporation dividend-yield-ttm | Norfolk Southern Corporation Quote

Norfolk Southern's consistent initiatives to reward its shareholders look encouraging. During 2024, it paid dividends worth $1.22 billion. In 2023, the company paid dividends worth $1.23 billion and repurchased and retired common stock worth $622 million. During 2022, Norfolk Southern paid dividends worth $1.17 billion and repurchased and retired common stock worth $3.11 billion. Buybacks not only reduce the total outstanding share count, thereby increasing earnings per share, but also signal management's belief in the intrinsic value of the stock.

Such shareholder-friendly moves indicate the company’s commitment to creating value for shareholders and underline its confidence in its business.

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This article originally published on Zacks Investment Research (zacks.com).

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